Starbucks: Delivering Customer

Service

Submitted by: Section F Group 5

5C Analysis

Company
Dominant Specialty coffee brand in North America with significant global presence
Value proposition: It was to create an "experience" around consumption of coffee
Branding strategy had three components: Coffee, Service and Atmosphere
Context
one third of the coffee bars in America were owned by Starbucks
Coffee consumption was on a rise with the specialty coffee segment growing at a CAGR of 9-10%
Collaborators
There were two major distribution channels: Company operated stores and licensed stores
Starbucks had also collaborated with Pepsi-Cola and Dreyer's Grand Ice Cream to reach more
potential customers
Customers
Starbucks had a fairly loyal customer base with 23% of them being associated for more than 5 years
Initial customers were well to do white collars between 25 and 44 years
Over the years, the customer base had shifted to a younger population and low-income group
Competitors
Starbucks faced competiton from three categories:
Small scale specialty coffee chains like Caribou Coffee and Peet's
Independent specialty coffee shops
Donut and bagel chains like Dunkin Donuts

Problem
There was very little image or product differentiation between Starbucks
and smaller coffee chains
Starbucks were not focusing on right things: Customer. They were not
communicating their values to the customers.
Customers viewed Starbucks as a coffeehouse which cares primarily about
making money
There was a service gap between Starbucks scores on key attributes and
customer expectations.
A typical customer visited Starbucks just 5 times a month which was too
low when compared to most frequent customers.
Starbucks was not meeting expectations in terms of customer satisfaction
which was to speed-up the service in their stores.
Also customizing coffee for frequent customers slowed down the service
for other customers.

Breakeven analysis
Unsatisfied Customer
Number of Starbucks
Visits/Month(Exhibit-9)

Satisfied Customer

Highly Satisfied Customer

3.9

4.3

$3.88

$4.06

1.1

4.4

8.3

Customer Value/Year

$181.58

$209.50

$381.
89

Customer value over the life

$199.74

$921.78

$3,169.67

Average Ticket
Size/Visit(Exhibit-9)
Average Customer Life(Years)
(Exhibit-9)

7.2
$
$4.42

Breakeven Analysis
Value difference between Satisfied and Unsatisfied Customer
Value difference between Highly Satisfied and Satisfied
Customer

27.91
172.39

Total Investment per year

$40,000,000

Total No. of North American Company operated stores(Exhibit2)

3496

Investment per store in a year

$11,441.65

No of Satisfied customer to be turned into Highly Satisfied

Customer in a year

66

Or
No. of unsatisfied customer to be turned into satisfied customer

410

Average daily customer count per store(Exhibit 3)

570

Total No. of customer count per store in a year

208050

No. of visits per customer per month on an average to a store

No. of visits per customer per year on an average to a store

60

No of unique customers to a store in a year

3468

Recommendations

The breakeven analysis for the $40m investment shows converting only 1.9%
customers from satisfied to highly satisfied category and simply retaining the other
customer segments will fetch the necessary dollar value
In order to retain customer satisfaction, Starbucks needs to maintain a clean and
convenient store, provide differentiated customer service to its valuable customers
and maintain the quality of its beverages and other products (As per Exhibit 10,
these are the key attributes in creating customer satisfaction)
In order to upgrade its customer satisfaction, Starbucks should concentrate on
providing
More attentive and friendlier partners (staff) who have gone through some
training period
Faster and more efficient service by further automating the coffee production
process (automated customization instead of manual)
Free cup after x number of visits to generate a Valued Customer perception and
to negate the belief Starbucks cares primarily about making money
Starbucks should also contemplate on analysing recent trends and customer
behaviour by implementing data analytics tools on the customer-transaction data,
which are collected from the Stored-Value Card (SVC)